“For patents, [transaction efficiency] can mean better ROI for both assignees and inventors, and risk mitigation for competitors; it is only a matter of time until investors want to participate.”
Investors, both speculative and strategic, are adjusting to the emergence of a bold new category of assets—digital collectibles. NFTs, or Non-Fungible Tokens, are so called because they are irreplaceable or one-of-a-kind artifacts—effectively, digital “limited editions.”
NFTs trade on blockchains or distributed ledgers, typically without middlemen or brokers. The primary advantage of most blockchains is transparency and efficiency. Agreements are recorded on an open ledger for all to see. This is especially attractive to frequent traders who require accurate pricing and full disclosure for difficult-to-value assets.
Now, two stalwarts in the intellectual property world, IBM and IPwe, believe that NFTs can be used to take patent monetization to new heights. They have teamed up to tokenize patents on the IBM blockchain. Precisely what that means for licensing and patent sales is still unclear. But given IBM’s depth in blockchain technology, its expansive patent portfolio, and IPwe’s experience in patent transactions, IP watchers will want to keep a close eye on developments.
Like collectibles, patent NFTs rely on a blockchain or distributed ledger to establish authenticity and ownership. Bitcoin (BTC), the volatile cryptocurrency, like 14 other currencies, trades on Coinbase. Ethereum (ETH) is another currency that trades there. Bitcoin is about anonymity. Most blockchains, including those that NFTs trade on, are about transparency.
A distributed ledger tracks transactions for all to see and shortens execution time and complexity. Blockchains are said to bring a level of confidence to trading alternative assets that is rare in the analog world and are scarce on many trading platforms that are used by professionals. Bitcoin has little to do with patent NFTs, save for they both are alternative assets transacted on a distributed ledger. (A good article in Forbes summarizing the types of NFTs can be found here.)
Shyam Nagarajan, Executive Partner, Go To Market Blockchain Services at IBM Services, told the Intangible Investor that the patent NFTs they are developing are “simplified smart contracts, readily individualized and anchored by real assets with an accessible chain of custody.” With patent NFTs backed by real assets and payable in tokens the likelihood of volatility is far less. He expects the current NFT pilot at IBM to have completed transactions before the end of the year.
In a recent announcement IBM said that it and IPwe “seek to transform corporate patents with next generation NFTs using IBM blockchain.” These NFTs will be stored and shared on the IPwe Platform, hosted on IBM Cloud and powered by IBM Blockchain. As of the end of 2019, IBM was the blockchain patent leader, with 185 families. It is followed by Chinese conglomerate, Ant Financial, Bank of America and Walmart, with 78, 74 and 50 families respectively (source: PatentSight via Statista).
“The use of NFTs to represent patents will help create completely new ways to interact with IP,” said IPwe CEO Erich Spangenberg. “This is expected to benefit not only large enterprises that have significant intellectual property, but it will bring new opportunities to small and medium enterprises and even individual IP owners.”
Artificial Intelligence (AI) lowers discovery costs and blockchain lowers transaction costs. IPwe’s platform, based on The Linux Foundation open Hyperledger, “leverages these exponential technologies to make it easier for business executives to effectively understand, interact with, and manage these assets.” Spangenberg believes that by using IBM’s blockchain patent NFTs can turn the current transaction market of billions of dollars into trillions.
An overlooked resource in Spangenberg’s arsenal is ClearAccess IP, an AI-based patent analytics company it purchased in 2020. ClearAccess IP was founded by Nicole Shanahan, a bright and enterprising young Silicon Valley lawyer with a broad vision of patent data and its uses. Shanahan is married to Google founder Sergey Brin.
There is a major difference between what IBM/IPwe are configuring and digitized collectibles like a Lebron James dunk (the NBA has been an early advocate of NFTs through “Top Shot”), a tweet from Twitter founder Jack Dorsey that sold for $2.5 million, a collage of images by the artist Beeple, which sold for $69.4 million, or an invention disclosure for a Nobel Prize-related cancer drug (see IP CloseUp post).
The latter are collectibles, memorabilia fashioned from a meme derived from copyrighted content (or a trademark or design) created expressly to monetize ownership of the original asset. Think of these NFTs as a type of brand extension.
They are related to an image, document or even an event, but are “original,” one-of-a-kind digital artifacts which can be resold buy not reproduced. (Prior to NFTs digital collectibles could not be confidently owned.) The Internet may be synonymous with copying, but NFTs consciously escape that box by relying on a blockchain. The patent NFT, on the other hand, is more about solving transparency and efficiency problems, and can includes ownership of the IP right (or partial ownership; or the right to sub-license) as part of the tokenized issuance.
The reliability of the market enables the price of, for example, computer memory patent NFTs or those covering antibiotic drugs to trade up or down depending on the news of the day. The appeal for purely financial investors to participate in patents as an alternative asset class can be a game-changer. Some are already participating in the non-patent NFTs.
Digitizing IP Rights
IBM’s own patent business has found it more difficult to monetize its patent portfolio in recent years, according to Bloomberg. Its revenues have slipped to just over $600 million from a high of $1.6 billion. “The current effort with IPwe is less about its own IP than enabling the digitization of all IP that exists across its clients using the blockchain and NFTs.”
With more mainstream NFTs, the captured digital moment-in-time is often associated with a copyright, trademark or design patent, but confers no ownership of the IP right. In fact, it may encourage infringement by implying an ownership interest. The NFT also needs to be permitted by the owner of the original document, clip or event. For example, someone cannot offer an NFT of a Kyrie Irving spin to the basket, unique as it may be, without the permission of the NBA, which likely owns rights to underlying image. They would likely call it a derivative work; others might say it is covered under fair use.
“The buyer of the NFT receives ownership of the NFT (with that ownership being recorded on the blockchain), and also presumably some implied right or license to make limited use of the underlying artwork embodied within the NFT in order to buy, own or sell the NFT,” writes law firm Falcon, Rappaport & Berkman. “By default, the purchaser of the NFT generally will NOT receive ownership of the underlying work of art embedded in the NFT, nor the right to reproduce, or transform that work of art.”
Cheryl Milone Cowles, IPwe’s Chief IP Officer, former CEO of ArticleOne Partners and a patent attorney, told Intangible Investor that “the certainty associated with distributed network verification is invaluable. It provides the confidence of transacting with a clear current title and history. Currently, that could take weeks to research.”
Cowles says that Spangenberg’s history of $2.5 billion in patent transactions, about 2% of the entire market, is likely to grow with IBM providing the transaction infrastructure and, possibly, parts of its own portfolio.
What about the abundant power consumption blockchain currencies and distributed ledgers require to sustain ubiquity? Will patent NFT’s be subject to similar sustainability concerns?
“Energy consumption depends on the public chain involved,” says Nagarajan. “IBM has been working to address those issues and with more energy efficient alternatives. A lot will depend on the volume and nature of the transactions.”
More efficient ways of transacting desirable but difficult to price assets are necessary, be they digital tokens or IP rights. For patents, this can mean better ROI for both assignees and inventors, and risk mitigation for competitors; it is only a matter of time until investors want to participate. Today’s buyers expect reliable information, quickly, until now an anathema for many asset classes and especially IP rights.
Expectations are high for the partnership between perpetual U.S. patent leader, IBM, a force in licensing and blockchain, and IPwe, an established player in patent transactions with a history of litigation and strong ties to both Europe and China.
Image source: ibm.com